Pender Corp. paid $270,000 for a 30% interest in Saltspring Limited on January 1, Year 6. During Year 6, Saltspring paid dividends of $107,000 and reported profit as follows:

Profit before discontinued operations			$324,000
Discontinued operations loss (net of tax)			(32,100)
Profit			$291,900

Penders profit for Year 6 is calculated on $963,000 in sales, expenses of $107,000, income tax expense of $342,400, and its investment income from Saltspring.

Required:

(a) Assume that Pender reports its investment using the equity method.

(i) Prepare all journal entries necessary to account for Penders investment for Year 6. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Transcation 1 : Record 30% investment in Saltspring.

Transcation 2 : Record dividends received.

Transcation 3 : Record 30% of Saltspring's profit and discontinued operations.

(ii) Determine the correct balance in Penders investment account at December 31, Year 6.

Balance in Penders investment account $

(iii) Prepare an income statement for Pender for Year 6. (Negative amounts and deductibles should be indicated by a minus sign. Omit $ sign in your response.)

Pender Corp Income statement Year ended December 31, Year 6
(Click to select) Income before income tax Sales Operating expenses Comprehensive income Income tax expense Net income before discontinued operations Disc. Operations - Equity method loss	$
(Click to select) Equity method income Sales Income tax expense Net income before discontinued operations Comprehensive income Income before income tax Operating expenses Disc. Operations - Equity method loss
(Click to select) Equity method income Net income before discontinued operations Income before income tax Sales Comprehensive income Income tax expense Disc. Operations - Equity method loss Operating expenses
(Click to select) Income before income tax Income tax expense Sales Equity method income Operating expenses Net income before discontinued operations Disc. Operations - Equity method loss Comprehensive income
(Click to select) Income before income tax Income tax expense Sales Equity method income Operating expenses Net income before discontinued operations Disc. Operations - Equity method loss Comprehensive income
(Click to select) Net income before discontinued operations Disc. Operations - Equity method loss Sales Equity method income Operating expenses Income before income tax Income tax expense Comprehensive income
(Click to select) Disc. Operations - Equity method loss Net income before discontinued operations Sales Equity method income Operating expenses Income before income tax Income tax expense Comprehensive income
(Click to select) Loss Profit	$

(b) Assume that Pender uses the cost method.

(i) Prepare all journal entries necessary to account for Penders investment for Year 6.

General Journal	Debit	Credit
(Click to select) Dividend income Investment in Saltspring Unrealized gain on FVTPL investment Equity method loss discontinued operations Equity method income Net income OCI - Equity method income Cash
(Click to select) Equity method income OCI - Equity method income Investment in Saltspring Cash Unrealized gain on FVTPL investment Net income Equity method loss discontinued operations Dividend income
To record 30% investment in Saltspring
(Click to select) Equity method loss discontinued operations OCI - Equity method income Dividend income Unrealized gain on FVTPL investment Equity method income Cash Investment in Saltspring Net income
(Click to select) Net income Unrealized gain on FVTPL investment Equity method loss discontinued operations Dividend income Equity method income OCI - Equity method income Cash Investment in Saltspring
Dividends received

(ii) Determine the correct balance in Penders investment account at December 31, Year 6.

Balance in Penders investment account $

(iii) Prepare an income statement for Pender for Year 6. (Negative amounts and deductibles should be indicated by a minus sign. Omit $ sign in your response.)

Pender Corp Income statement Year ended December 31, Year 6
(Click to select) Income tax expense Equity method income Income before income tax Net income before discontinued operations Sales Disc. Operations - Equity method loss Comprehensive income Operating expenses	$
(Click to select) Net income before discontinued operations Comprehensive income Disc. Operations - Equity method loss Sales Dividend income Operating expenses Income tax expense Income before income tax
(Click to select) Sales Operating expenses Equity method income Income before income tax Disc. Operations - Equity method loss Income tax expense Comprehensive income Net income before discontinued operations
(Click to select) Income before income tax Income tax expense Sales Equity method income Operating expenses Net income before discontinued operations Disc. Operations - Equity method loss Comprehensive income
(Click to select) Income before income tax Income tax expense Sales Equity method income Operating expenses Net income before discontinued operations Disc. Operations - Equity method loss Comprehensive income
(Click to select) Profit Loss	$

(c-1) Compute return on investment under the cost method and return on investment under the equity method. (Round your answers to 2 decimal places.)

Cost method return on investment			%
Equity method return on investment			%

(c-2) Which reporting method would Pender want to use if its bias is to report the highest possible return on investment to users of its financial statements?

• Cost method

• Equity method